Is DOD Missing the Boat on High-Tech Innovation?

Mark Aslett is the president and CEO of the Andover, Mass.,-based company, which ranks 27th on Fortune’s list and builds sophisticated real-time processing subsystems. Mercury Systems photo.

The only aerospace and defense firm among Fortune’s 100 Fastest Growing Companies is Mercury Systems, which is not your typical defense company.

“I like to say we’re a high-tech company operating in the defense marketplace, as opposed to being a defense company that develops high-tech technology,” Mercury President and CEO Mark Aslett told Air Force Magazine. “We’ve proven at scale how a high-tech commercial business can be successful inside the defense industry.”

The Andover, Mass.,-based company, ranks 27th on Fortune’s list and builds sophisticated real-time processing subsystems, that go in everything from radars to electronic warfare systems.

While most traditional defense suppliers invest just 2 to 3 percent of revenue on internal research and development, Mercury pumps 11 to 13 percent of total revenue into R&D.

That’s “very much in line with what the [Defense] Department wants,” Aslett said.

Mercury’s growth is driven by an acquire-to-grow strategy. The firm invested more than $600 million on seven corporate acquisitions in the past 32 months as it seeks, in part, to grow its expertise in command and control. That is “an enormous market” Aslett said, and the company will “continue to invest.”

Once new firms are added, Aslett said, R&D spending is ramped up. “We’re doubling or tripling the amount of R&D” in those companies, said Aslett.

Mercury is “aggressively investing in open system architecture” that allows the company to “rapidly pre-integrate the technology” at its own expense, he said. “In essence, what we’ve developed is a much more agile approach to the next-generation technology.”

For a Pentagon desperately trying to innovate without getting caught up in bureaucratic red tape, that should be an exciting proposition. Yet as an established firm, Aslett said Mercury is often pressured to fall back into more traditional acquisition models.

“The acquisition policies haven’t yet caught up with something we’re doing very, very successfully,” Aslett said. “We’ve been able to figure out how to leverage the investment of high-tech commercial companies and we’re adapting that technology for use in defense.”

Innovation efforts like AFWERX and DIU, formerly known as DIUX, focus heavily on startups, but those firms lack the wherewithal to weather program delays and the complexities of doing business with the government, and they lack the resources to go it on their own. Aslett said that’s a missed opportunity.

‘The department … is experimenting in different things, but they have a company right under their nose that’s figured out,—at scale—how to operate and how to do the things you’re looking to do.”